Jurisdiction in cases involving international construction contracts under the recast Brussels I Regulation
In disputes involving cross-border construction contracts, one of the questions to be resolved is jurisdiction. Before joining issue in litigation in Poland, the defendant may assert the defence of the lack of jurisdiction of the Polish courts. Jurisdiction in such cases will be determined by applying the recast Brussels I Regulation. The Wrocław Regional Court recently issued a ruling on application of this regulation in civil litigation involving construction works.
Jurisdiction in cases involving international contracts
The rules for jurisdiction in cases involving cross-border contracts are set forth in Art. 7(1) of the recast Brussels I Regulation (1215/2012). Under this provision, a person domiciled in a member state may be sued in another member state in the courts for the place of performance of an obligation. However, under this general rule, Art. 7(1)(b) specifies that in the case of a contract for the sale of goods, the place of performance means the place in a member state where, under the contract, the goods were delivered or should have been delivered; and in the case of a contract for the provision of services, the place in a member state where, under the contract, the services were provided or should have been provided.
To ensure uniform application and predictability in the jurisdictional rules, the criterion of the place of performance under a service contract should be interpreted autonomously (C-19/09 Wood Floor Solutions). The justification for relying on this link is to entrust issues arising out of a contract to the courts for the place most closely connected with the parties’ legal relationship. This is a universal principle, as the court most closely connected to the legal relationship is in the best position to accurately and quickly determine the facts of the case.
Thus, to determine jurisdiction in a case involving a construction contract, it should be determined whether it is a contract for “the provision of services” or it should be classified in some other way.
What does “provision of services” mean under the recast Brussels I Regulation?
The notion of “provision of services” has a standalone meaning under EU law, apart from the national law of any of the EU member states. Thus it would be improper to apply the meaning of this term under Polish national law in this respect. The interpretation should be made independently, in light of the regulation and the case law of the Court of Justice of the European Union, which is solely vested with the competence to interpret EU law.
In C-381/08 Car Trim, the Court of Justice laid down guidelines for distinguishing a contract for the sale of goods from a contract for the provision of services. In the court’s view, the relevant factors are the origin of the materials for producing the item and the scope of the seller’s responsibility. If most of the materials are provided by the buyer, this points to a finding that the contract is for services. A service contract is also indicated when the seller is responsible only for proper production of the item in accordance with the buyer’s instructions, and not generally for the quality or contractual fitness of the product. Based on our experience, a great many international construction contracts are framed in this way.
In C-249/16 Saale Kareda, the Court of Justice found that the interpretation of “provision of services” under the original Brussels I remains current under the recast regulation, in light of the nature of these regulations. This maintains a consistent and uniform interpretation of this notion under Brussels I as an act of EU law, as well as under Art. 56–57 of the Treaty on the Functioning of the European Union. Under the treaty, the notion of provision of services should be interpreted broadly as the aim of this provision to extend its coverage to as broad a group of undertakings as possible, often in different jurisdictions.
Do contracts for provision of services also include contracts for construction works?
The characteristic obligation in a contract for the sale of goods involves the supply of goods for money, whereas in a contract for the provision of services it is carrying out a particular activity in return for remuneration (e.g. C-381/08 Car Trim). Under CJEU case law, typical services are provided for example by sales representatives, distributors, private investors, and builders. Thus contracts for construction works are classified as contracts for the provision of services (U. Magnus et al., Brussels I-bis Regulation: Commentary, 2016, pp. 200–203).
Although interpretation of the notion of “provision of services” should be made under EU law, not national law, it should be pointed out that under current Polish case law, a contract for construction works is regulated by the Civil Code as a specific type of contract with its own characteristics (commentary to Civil Code Art. 647 in P. Drapała, Civil Code: Commentary, vol. 4, 2017). The subject of a contract for construction works (Civil Code Art. 647) is not just erection of a building, but also the manner of performance, i.e. in compliance with the design and principles of technical knowhow. As the Łódź Court of Appeal pointed out in its judgment of 3 December 2014 (Case I ACa 757/14), it often happens in practice that the subject of the contract is not completion of the entire structure or even a even a distinct part of the structure, but “work contributing to the completion of the structure, as an integral part of the final result…. Thus a contract for construction works does not necessarily have to do with erection of a certain structure. Performance of a contract for construction works may be made partially, through completion of certain phases of work, constituting a certain fragment contributing to the entirety of the structure.” Consequently, the court held that “the subject of a contract for construction works may be completion of parts of a structure rather than the entire structure.”
Under Polish law, a contract for construction works shares many characteristics with a best-efforts contract, which under Civil Code Art. 750 is governed as relevant by the provisions on service contracts as a type of contract of mandate (Civil Code Art. 734 and following) (Rzeszów Court of Appeal judgment of 21 December 1993, Case III AUr 357/93).
Consequently, there is nothing preventing treatment of a contract for construction works as a contract for provision of services for purposes of determining the jurisdiction of the Polish courts.
Wrocław Regional Court: “provision of services” should be interpreted broadly
In a case we handled, the Wrocław Regional Court upheld our position that the notion of “provision of services” should be interpreted broadly, and the interpretation is not controlled by national law (order of 3 January 2018, Case X GC 800/16).
In the Wrocław case, one of the parties to the contracts for construction works at issue performed services in only one EU member state, namely Denmark. As the court pointed out, the recast Brussels I Regulation does not apply directly to Denmark, but the EU has reached an agreement with the Kingdom of Denmark ensuring application of the regulation there (EU OJ L-182/1, 10 July 2015).
The court in Wrocław held firstly that because the recast Brussels I Regulation draws a dichotomy in the place of performance of contracts, separately for contracts for the sale of goods and contracts for the provision of services, the notion of “provision of services” should be interpreted broadly. Consequently, a contract for construction works fits within the broad definition.
Secondly, with respect to the case at hand, the court found that the contract displayed a greater connection to Denmark, because that was the member state where the construction work was performed, and the plaintiff in the case also had to comply with the conditions and legal regulations in force in Denmark. Consequently, the court upheld the defence of the lack of jurisdiction in Poland and dismissed the claim.
In summary, pursuant to the recast Brussels I Regulation and consistent with the case law of the Court of Justice of the European Union, establishment of jurisdiction should facilitate resolution of disputes by the court that is objectively best situated to determine the facts and assess whether the grounds for liability have been proved. Given the nature of international construction contracts and the subject matter of the resulting disputes, EU law, followed also by Polish law, recognises that for purposes of establishing jurisdiction a construction contract may be regarded as a contract for the provision of services.
Monika Hartung, legal adviser, Marta Kozłowska, Dispute Resolution & Arbitration practice, Wardyński & Partners